Craig Calder: Maintaining first-time buyer sector momentum

In last month’s piece I focused on how important good quality professional advice is, in terms of offering access to the right levels of information and range of options throughout a borrower’s lifecycle.

Within this I looked at both ends of the lending scale, but for this article I would like to continue the focus on first-time buyers (FTBs) and the factors influencing a sector which is maintaining a strong level of momentum despite the lingering political and economic uncertainty. Although it is not all plain sailing.

First-time buyers are reported to be overwhelmingly happy with their mortgages, as just 4% are claiming to be unhappy.

However, Aldermore’s First-Time Buyer Index also revealed that the first year of home ownership can be extremely costly, often leaving new buyers struggling to make ends meet.

Over half (57%) of respondents said they spent more during the purchase process than they intended.

Due to this, one in four (23%) admitted ending up living in an empty house for months after moving in and around one in 10 (13%) said it took years to afford to furnish and decorate it the way they wanted.

Many first-time buyers – who previously lived with parents or were in accommodation where bills were included in the rent – find the costs of regular household bills a surprise.

According to the index, the average cost of council tax, ground rent, home insurance and monthly utility bills (gas, electricity, internet etc.) can total over £6,200 annually.

It was reassuring to see that despite the complexity of the current system, home ownership still remains something that most people aspire to.

Half (50%) of those looking to buy their first home said it is their dream to get onto the property ladder.

For many, it is a signifier of adulthood (81%) and it means they are no longer wasting money on rent (76%). Having bought, 40% said they felt a sense of pride while 37% felt they have made a step forward in life.

Research from reallymoving outlined that first-time buyers using the Help to Buy scheme are paying 10% more on average than those who are not.

The data, collected from over 40,000 first-time buyers, found that those purchasing a new build home in England with Help to Buy paid, on average, £303,450 in the 12 months to September 2019.

Calculated at postcode area level to account for regional variations, the premium paid by those using the scheme was suggested to be 10.3%.

This comes as Barratt Developments recently revealed that 40% of its customers were using Help to Buy. The Help to Buy premium was said to be highest in Yorkshire, the West Midlands and the North West at 21.6%, 21.5% and 19.9% respectively.

The premium has remained stable in the capital and stands at 11.8%.This data highlights the importance of borrowers undertaking strong levels of research for such purchases and seeking the right levels of advice throughout this process.

Not to mention clarity around the exit strategy for all those utilising this scheme.

Staying on the theme of schemes for FTBs, it’s been reported that the government is reviewing a new national model of shared ownership.

This includes allowing people to buy further shares in smaller increments of 1% or more and to cut the fees being charged. For tenants in new housing association properties, there will be an automatic right to buy a share of their home from 10% with the ability to increase that share over time, up to full ownership.

The government will work with housing associations on a voluntary basis to determine what offer can be made to those in existing housing association properties. In addition to this, the government is said to be reviewing cutting the minimum initial stake from 25% to 10% for shared ownership.

Any positive steps which help more people onto the housing ladder has to be a good thing but, as with any scheme, the government has to ensure that there is a well-thought out path from inception through to completion for borrowers and the industry in general.

The number of mortgages for first-time buyers has reached a 12-year high. There were 35,010 first-time buyer mortgages completed in August 2019, according to research from UK Finance.

This was the highest monthly total since August 2007, when 35,070 first-time buyers completed mortgages. The August figure was 0.7% higher than in the same month last year. In contrast, 35,380 homemover mortgages were completed in August 2019, 5.5% fewer than in the same month a year earlier.

One of the reasons behind this FTB increase could be the rising number of 40-year mortgage terms. Data from Moneyfacts outlined that some 2,782 (57%) residential mortgage products have a standard maximum mortgage term of up to 40 years – as at the time of writing.

Other influences such as historically low rates, high employment levels and heightened lending competition – plus a healthy and resilient housing market – are all key factors in a booming FTB marketplace. In addition, the intermediary market should also take some credit.

In difficult economic conditions its vital that people have confidence to borrow, and the advice process continues to play a huge, but sometimes underestimated role, in making this happen. And long may this continue.